1. Alexander 2004 CMS-Premier Hospital Quality Incentive Demonstration Project Stephanie Alexander Senior Vice President Premier Inc. Healthcare Informatics www.qualitydemo.com

2. Alexander 2004 About Premier Premier, Inc., is a strategic alliance owned by 200 of the United States’ leading not-for-profit hospitals and healthcare systems. –These systems operate or are affiliated with nearly 1,500 hospitals and hundreds of other healthcare sites. Owners Affiliates

3. Alexander 2004 Is there a business case for quality in hospitals? Performance Top PerformersLowest Hospitals Performance Group Innovation Group Opportunity Group Top decile in performance (low cost and high quality) Bottom quartile in performance (high cost, low quality)

4. Alexander 2004 CABG Performance Source: Premier Perspective TM

5. Alexander 2004 Non-collaborators’ financial performance Source: Premier Perspective TM

6. Alexander 2004 Collaborators’ financial performance Source: Premier Perspective TM

7. Alexander 2004 CMS/Premier Hospital Quality Incentive Demonstration Project  A three-year effort linking payment with quality measures  Top performers identified in five clinical areas Acute Myocardial Infarction Congestive Heart Failure Coronary Artery Bypass Graft Hip and Knee Replacement Pneumonia  278 participating hospitals nationwide

8. Alexander 2004 Identifying Top Performers  Composite Quality Index will identify hospitals performing in the top two deciles in each clinical focus group  Composed of two components: Composite Process Rate Risk-Adjusted Outcomes Index  Clinical conditions without outcomes indicators use only the Composite Process Rate

9. Alexander 2004 Widely accepted quality measures The CMS/Premier quality measures are based on clinical evidence and industry recognized metrics, including: All 10 indicators from the National Voluntary Hospital Public Reporting Initiative 27 indicators from the National Quality Forum (NQF). 24 indicators from CMS 7th Scope of Work. 15 indicators from JCAHO Core Measures. 3 indicators proposed by The Leapfrog Group. 4 indicators from the Agency for Healthcare Research and Quality’s (AHRQ) patient safety indicators.

10. Alexander 2004 Medicare Payment Incentives Incentive payment threshold changes annually for each clinical condition Top decile performers in a given clinical area receive a 2 percent payment supplement per condition Second decile performers receive a 1 percent payment supplement per condition. Reduced payments in year 3: 1% reduction if < year one ninth decile 2% reduction if < year one tenth decile

11. Alexander 2004 Anticipated payment scenario 1st Decile Hospital Year OneYear TwoYear Three Top Performance Threshold Payment Adjustment Threshold 2nd Decile 3rd Decile 4th Decile 5th Decile 6th Decile 7th Decile 8th Decile 9th Decile 10th Decile 1st Decile 2nd Decile 3rd Decile 4th Decile 5th Decile 6th Decile 7th Decile 8th Decile 9th Decile 10th Decile 1st Decile 2nd Decile 3rd Decile 4th Decile 5th Decile 6th Decile 7th Decile 8th Decile 9th Decile 10th Decile Condition X

12. Alexander 2004 Heart Failure: Pre-release vs 4Q03 Median Comparisons Premier HQI Demonstration Project Participants Preliminary Data 32.19% 83.08% 75.00% 51.61% 60.47% 38.10% 85.81% 77.97% 64.27% 65.79% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00% Discharge instructionsLVF assessmentACEI for LVSDAdult smoking cessation counseling Composite Quality Score Measure Rate Pre-Release 4Q03

13. Alexander 2004 Composite Score: All 34 HQI Project Measures HQI Project Time Period: 4Q03 vs 4Q03 - 1Q04 83.0% 76.9% 69.7% 65.4% 86.5% 66.6% 71.3% 78.3% 84.1% 87.2% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Top2ndMedian8thBottom Decile Threshold Composite Score